Exploration

Archive: 15 April 2004

On this, the day on which citizens of the United States owe their income taxes, it’s worth reflecting on the effects of tax-code changes over the past few years. After all, President Bush claims that those changes are responsible for an economic recovery, while Senator John Kerry insists the economic situation is miserable and that the tax situation is making things worse. The truth, as ever, appears to lie between those views. And, of course, both views can be supported by citing specific facts while not giving attention to others.

What it comes down to, in effect, is that things have changed very little; tax cuts and the economic slump have basically balanced each other out, leading to a very minor drop in median household income. There was one interesting statement:

At least part of the reason for the decline in median income at the same time that average income rose is that the wealthy have seen more gains from both the tax cuts and the overall economic climate, according to economists.

It left me wondering exactly what definition of “wealthy” is being used in this context. I also found this passage to be of interest:

“The debate about tax cuts shouldn’t be whether they helped or not — they clearly helped taxpayers,” said Vitner. “The debate should be whether we can afford them and whether they can lead to a sustained recovery in economy.”

That’s long been my concern. I’d like to see an interactive budget-and-tax simulator, something that would let you adjust spending levels and find out how much tax revenue would be required to cover your budget. Oh, look, there is! Well, not exactly, but hey, it’s a start.

I’d actually like to see a simulation that doesn’t let you run a deficit—one where tax receipts must match expenditures. That would deliver a much better idea of what taxes should be in order to support the budget. It would be even better if you could plug in what you owed this year and see what you would actually owe if the government couldn’t rack up huge debts. Or, conversely, just how much would have to be cut in order to keep your taxes from increasing. Let’s put it this way: if the budget deficit were divided equally in classic flat-tax fashion, every man, woman, and child in the country would owe somewhere around $1,250. I got that by dividing $350 billion by 280 million. So my household would—one might even say should—owe an extra $3,750 this year.

For some reason, instead of crowing that I got away with something, I find myself concerned about the long-term consequences implied by those figures. I’m trying to imagine how many years of budgetary surplus would be required just to fill in the hole we’re digging, and I don’t like the answer.